Economics, earnings reports, and market events for the week ahead.

What a week! The S&P 500 (INDEXSP:.INX) broke to new highs, and all was well in the world. On Friday, the Labor Department reported that the US economy added 165,000 nonfarm payrolls, more than the 140,000 that was expected by economists. The estimate also reflected increased negativity as the median estimate had begun the week at 155,000. More importantly, the velocity of the rally was due to the upward revisions in March and February. Compared to other economic data and the ADP survey of 131,000 private payrolls (revised down from 158,000) in March, the headline number for nonfarm payrolls data appeared to be a bit too low -- but even still, we were surprised at how large the revision was.

Coincidentally, Friday’s report appears to have swung too far in the other direction. A few things stand out in that regard. April’s ADP report stands at 119,000, which is a decent difference from the BLS private payrolls data, especially now that the ADP report is technically more accurate. Additionally, a combined look at the employment subindexes for regional and national manufacturing and service surveys over the last month showed the third lowest level of payroll growth in the last 13 months, which is even more troublesome considering the recent growth we’ve had in payrolls especially. Though, to be fair, goods producing jobs fell by 9,000 last month, so it is possible that some of the weakness showed up in the report.

The other place for concern was the outsized decline in average weekly hours worked. Average weekly hours declined to 34.4 hours from 34.6 the month prior, below the 34.4 consensus estimate. The largest decline came in the retail sector with hours dropping to 30.0 from 30.3. Also, Americans earned $3.39 less on average over the week, down to $821.13. We have two theories to link to this decline. First, with the push to implement new health care reform into law, companies have reduced employees’ hours in order to avoid paying higher costs; this could be passing through to average overall hours. Second, government jobs declined by 11,000 in the past month, which is certainly linked to layoffs associated with the sequester and a reduction in hours.

Dealing with the Treasury market in particular, we experienced a borderline tail event with the 10-year cash note falling more than 1 point, which is something that is not seen very often. One data point in particular links to the violence of the sell-off today: the Stone-McCarthy Money Managers survey that was released on Wednesday. Within the survey, Treasury allocations rose to 28.2%, the highest point since September 2007. Additionally, CRT Capital’s NFP survey indicated an overall bias to sell on the report, especially if it traded higher. 50% of respondents had a bias to sell a positive report vs. the 34% average and 7% to buy vs. a 19% average. Overall, economic growth data has made a bullish fundamental case for Treasuries, and that shouldn’t change drastically in the near-term. The 1.82%-1.83% area of the 10-year cash yield looks much more appetizing to add long Treasury positions as it has been a major inflection point of Treasuries over the past 18 months, and more than a few investors need to get shaken out here.

As for the technicals, Treasuries had a very weak weekly range. After breaking out above last week’s range, an outside bar down was recorded and what appears to be a bearish engulfing bar was also recorded. This would indicate from the technicals that the selling could continue into next week before we find some level of support around the 1.83% area.

Looking forward to next week, the economic calendar is very bare. March consumer credit will be released on Tuesday; it is expected to grow at a seasonally adjusted rate of $16 billion. The last report saw very negative growth in the non-seasonally adjusted data from revolving financial credit and depositors with the only positive data coming from growth in federal government credit and very marginal growth in nonrevolving financial credit.

On Friday, we will see the Treasury monthly budget statement for April. Usually this kind of information wouldn’t garner any attention, but for the second quarter, the Treasury has forecast to run a net profit (for lack of a better word) due to lower tax refunds and higher tax receipts than expected. April’s budget is expected to show a surplus of $106 billion. Unless the administration brushes this off as a transitory effect, look for this to weigh on certain tax issues such as the expiration of the payroll tax cut and even moreso for financial markets; this should reduce the amount of discussion on whether or not to remove the tax exempt status of municipal bonds.

Next week, there is the 10-year and 30-year refunding auctions. These will be first issues of both at larger-than-normal sizes of $24 billion and $16 billion respectively. At last month’s second refunding, both the 10-year and 30-year tailed by 1bp. Additionally, direct bidder allocations were largely above normal.

In global economics, the main highlight is the Bank of England, given all of the central bank's fireworks this past week. For the past two months, the core members of the central bank have advocated for more asset purchases, but have been outvoted 6-3 for the past two months. With economic data improving over the last month, look for a more moderate rhetoric as the GBPUSD has rebounded from 1.49 to 1.5567 today.

Also on the calendar is the G-8's meeting on Friday. With the USDJPY rising from 76 to 99 recently, G-8 countries have been lax in their attitude toward Japan's fiscal and monetary policy. Given the relative non-movement and relatively toned down comments from the Bank of Japan, we are unlikely to see much change.

Earnings season will start to die down next week with 80% of S&P 500 companies having reported up to this point. Notable earnings reports for the week include Disney (NYSE:DIS), Tyson Foods (NYSE:TSN), Groupon (NASDAQ:GRPN), News Corp (NASDAQ:NWSA), and Liberty Media (NASDAQ:LMCA).

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